Eddie Molloy: ‘Banks might finally accept that change is necessary – but it’s been far easier to restore their financial health than transform the culture in which they operate’

The launch of the Irish Banking Culture Board (IBCB) is a welcome initiative by the Central Bank to address the pattern of recurring scandals that are spawned by a deeply ingrained, cynical banking culture.

Cynical, because the noble corporate values and ethical principles that the banks’ marketing rhetoric purports to espouse have been systematically violated again and again, resulting, for example, in people losing their homes over the tracker mortgages scam and the whole banking system collapsing and needing to be bailed out by public money.

The banks are now restored more or less to financial health, not least because of continuing injections of public money in the form of taxes on profits for the next several years being foregone by the State.

Please log in or register with Independent.ie for free access to this article.

However, recent history tells us that restoring the financial health of these institutions is much easier than exorcising malignant genes from their inherited cultural DNA. Hence the importance of the IBCB whose role, as expressed by the chairman, Mr Justice John Hedigan, is “to facilitate the banking sector to embed a culture where ethical conduct is inevitable”.

The leaders of the participating banks, AIB, Bank of Ireland, KBC, Permanent TSB and Ulster Bank, accept that cultural change is required and have committed to a sustained programme of concrete actions in order to achieve this ambitious aim.

A measure of their commitment is their decision to fund an independent IBCB. While this is an encouraging start, the real test of their sincerity will come in the months and years ahead. As Judge Hedigan says: “These goals will not be achieved in the short term. This is a long-term endeavour requiring patience and persistence.”

If you go onto any bank’s website you will find elaborate statements of values, codes of conduct and principles incorporating commitments to putting the customer first, integrity, transparency, fairness, ethical behaviour, prudence and compliance with the highest standards of corporate governance and the law of the land. But we have been here before. For at least 20 years, such ideals have been set down in statements of strategy and heavily promoted in corporate literature and marketing campaigns.

In effect, however, these high-sounding statements were only an ornament, window-dressing that masked a culture that encouraged and rewarded mis-selling of investment products, over-charging for foreign exchange, breach of contract in regard to tracker mortgages, and many other ruthless violations of the ‘customer first’ principle as well as imprudent, indeed reckless, lending that resulted in the catastrophic implosion of the banks.

While the memory of these egregious breaches of trust remains fresh, the IBCB chairman rightly surmises that many people will reserve judgment. So what might make a difference this time?

A true story will illustrate. Around 20 years ago, I facilitated the articulation of the core values of a financial services provider, resulting in worthy sentiments similar to those you will find in contemporary banking documents. I created a programme designed to have staff at all levels ‘engage with the values’, a process that involved regularly taking time out to reflect on ‘how are we living our values in our behaviour, our treatment of customers, and in our systems and policies?’; ‘how are we not living our values in our behaviour, etc?’; and ‘what remedial action do we need to take?’

This kind of sustained consciousness-raising is the key to embedding “a culture where ethical behaviour is inevitable”, that is where the espoused values become a way of life. Attending seminars or reading bulletins about culture, ethics and values will not do it. Transforming a dysfunctional culture is a slow-moving, developmental challenge, as distinct from the technical challenge of improving financial performance.

When this programme of ‘engagement with the values’ was ready to be rolled out, a senior manager proposed at a meeting of the senior management team that “we should spend time engaging with our values”. This person subsequently told me that the idea was dropped when a colleague countered, “ah sure the values are for the staff”.

All the relevant literature asserts that the culture of organisations is set by the CEOs who over time surround themselves with like-minded people. The decisive criterion for promotion up through the ranks is whether the individual is a ‘good cultural’ fit. A process of cloning takes place, especially in closed systems like the Catholic Church or An Garda Síochána. The embedded culture becomes a taken-for-granted, implicit code that is transmitted subtly through the hidden curriculum of nod and wink. To question the prevailing culture is taboo and career-threatening. In this context the establishment of the IBCB is very welcome. It will provide the kind of vital external scrutiny and pressure without which there will be no lasting change.

Crucially, the IBCB will need assurances that the boards and senior management teams of the banks are periodically taking time out to interrogate how well their espoused values are reflected in their own behaviour and in the decisions they make about structures, systems, rewards and policies regarding products and customer service.

Ideally, an external presence at such reflections is recommended, at least occasionally, because human nature has a great capacity for rationalisation and self-deception in these matters. For example, Irish-born Onora O’Neill, the eminent Cambridge philosopher, fulfils this role for one of the big UK banks.